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Several economists are predicting that today’s slowdown in pay growth will encourage the Bank of England to cut interest rates at its next meeting in early November.
Following the news that regular wage growth across Great Britain slowed to 4.9% in June to August, down from 5.1% a month ago, Ashley Webb, UK economist at Capital Economics, says:
The further fall in wage growth in August, together with some signs that the labour market continued to loosen gradually, adds further support to widespread expectations that the Bank of England will cut interest rates from 5.00% to 4.75% at the next policy meeting in November.
“The labour market report is unlikely to move the dial much on interest rate expectations. Wage growth continues to gradually moderate, but still needs to come down further to be fully consistent with the Bank of England’s target.
Easing wage pressures are supported by a notable fall in services sector pay growth, which recorded 3.6 per cent, down from an average of 5.6 per cent in the first half of this year. This is positive news for inflation and might provide the Bank of England with increased confidence regarding interest rate cuts”.
“UK ex bonus wage growth cooled from 5.1% to 4.9% in the three months to August and vacancies continued to contract, while an untrustworthy LFS unemployment figure fell again to 4.0%.
“The headline here is that the trend in the labour market is still going in the right direction for 2% inflation, and that should support a steady stream of rate cuts from the Bank of England. Labour demand is cooling off and that is returning some slack to the market, which is bringing down wage growth, and that should filter through into the all-important services inflation figure over the coming months.
